Cash Flow Statement Exercise 2

1. The following is the cash account of Los Huevos Ltd. for the years 2013 and 2014: Cash a/c

Jan 1 13 Balance $2400Mar 11 Sales $35000 Mar 29 Debtor $24500 Apr 8 Sales $12000 May 14 Capital $5000 Jul 3 Debtors $16250 Aug 16 Computers $9000 Oct 31 Rent revenue $4000 Nov 27 Loan $11400

Dec 31 Balance $12720 $132270

Feb 22 Drawings $7500Mar 14 Accrued $2970 AdvertisingApr 20 Computers $25500May 10 Inventory $32300May 25 Office Exp. $4850Jun 11 Creditors $23900Aug 7 Salary $16170Sept 30 Sales Return $1960Nov 1 Furnitures $7200Dec 16 Inventory $9920 $132270

Cash a/cJan 9 Bank Loan $20000 Feb 13 Rent Revenue $3500 Mar 20 Sales $36000 Apr 17 Debtors $12700 May 8 Debtors $8280 Jun 6 Machinery $19000 Jul 14 Inventory $1300 Aug 12 Accrued Rent $500Sept 2 Sales $27500Nov 18 Inventory $670Dec 31 Balance $4200 $133650

Jan 1 14 Balance $12720 Feb 14 Inventory $37820Mar 23 Machinery $36000Apr 12 Creditors $10200May 18 Sales Return $850Jul 4 Inventory $9400Aug 26 Interest $1100Sept 29 Salary $18860Oct 1 4 Drawings $5200Nov 25 Drawings $1500 ______ $133650

a) Prepare one cash flow statement for the business for each year.b) Comment on the cash balance and net cash flows for both 2013 and 2014. c) Suggest 3 ways to improve the cash flow of Los Huevos Ltd in year 2014.

2. Explain the 3 main purposes of a cash flow statement.

3. It is said that a business can show a profit during an accounting period but experience negative net cash flow at the same time. How is this possible? Explain. Discuss also the opposite situation (i.e. showing a loss but having a positive net cash flow).